Thursday, December 1, 2011

UK Personal Debt Problems Creating Hardship For Nation’s Young Adults

Problem personal debt levels, especially for people under 25, in the UK have risen since last year according to the Consumer Credit Counselling Service (CCCS). In a report released this week they revealed that the average client aged under 25 coming for counselling in 2005 owes £15,000. The report also states that “More young people are getting themselves into situations where they find themselves unable to meet their unsecured credit commitments.”

CCCS chairman Malcolm Hurlston said, "The growing trend for young people to get into these amounts of problem debt is a concern. Bankruptcy figures are soaring, and this rise may be accounted for by the young who are without assets and who have overspent on credit cards and personal loans These trends are a natural consequence of the desensitization of borrowing - credit cards have blurred the distinction between borrowing and spending and for many young people, student loans have made borrowing normal..”

Financial comparison site Moneynet ( http://www.moneynet.co.uk ) believes that, students face a potentially ‘calamitous’ problem with their credit histories on graduation thanks to the now inevitable prospect of leaving college or university with high debt levels. Moneynet CEO Richard Brown said “The majority of graduates are looking at servicing a minimum debt of £15,000 until their mid-thirties.”

University debts are now seriously starting to cause problems for the younger generation. The debts generated at college have for many combined with the spiraling house prices forcing them to stretch themselves financially. Those affected include both those prospective first-time buyers trying to get on the housing ladder and parents trying to help out their children with cash or by being a mortgage guarantor.

Another problem area, although banking organization APACS is keen to emphasize that it only affects a minority of people, is that of credit card debt. Jennifer Brumby from the Newcastle branch of the CCS said, "People are now taking out credit to pay off their credit. But when you get that far into debt, you are really on a slippery slope. People will take out a loan to pay off their credit card and then find they haven't got enough money to survive on so they start running up their credit card bill again and the whole cycle starts over.”

Following accusations by the Citizens Advice Bureau - http://www.adviceguide.org.uk/ (CAB), it seems that the situation does not appear to be greatly helped by the use of payment protection insurance (PPI), which is specifically designed to help those potentially liable to fall into debt by repaying personal loans or credit card debt if they fall ill or lose their jobs and are therefore no longer able to meet their financial commitments. The charity found that PPI is failing many of those who need it most, adding to their debts instead of protecting them against hard times. The CAB said that, “in many cases it is more about providing an additional source of profit for the financial industry than about protecting consumers”. The premiums for policies when added to the full amount being borrowed can increase the cost of borrowing on some credit cards by up to 9% per year. The CAB has lodged a “super complaint” on behalf of their clients, to get the Office of Fair Trading to launch an investigation into the issue.

The CAB stated several different problems with the policies including:

- common difficulties such as bad backs or mental health issues which often lead to claims, are being excluded to prevent payouts
- self employed or contract workers are frequently excluded from claiming
- time limited payout periods reduce the length of time that claims will be paid out for
- low payment amounts being paid for successful claims, usually only covering only the possible minimum payments on a loan
- delays in payments being made following the initial claim and leading to increased financial difficulties for the claimant

CAB has said that 85% of its clients who had tried to claim on their PPI policies had been turned down, however the industry is claiming that only 15% of claims are rejected.

David Harker, CAB chief executive, said "We badly need an official investigation of how this market is operating, leading to effective regulation that ensures a fair deal for all consumers, and which also protects the most vulnerable".

More of the nation’s young adults are coming out of university and starting their working life with greater debts. Many first-time buyers are finding the cost of housing beyond their finances. More emphasis is being placed on individuals providing for their own long-term future privately. Now the financial safety nets are being shown to contain so many holes that more people are falling through than being caught. The financial future of a generation of young Britons is looking bleak. As more financial choice is being made available to people, less automatic help is becoming accessible from the government and more responsibility is also being required of consumers themselves. Debt may for most people, have become a generally accepted part of modern UK life, and should no longer be seen as something to be scared of, but discovering how to control it and not let it take over control of your life is an important lesson which is best learned as early as possible.